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SYDNEY: The dollar held its ground on Monday as investors set their sights on data later in the week that is expected to show red-hot inflation after a strong US labour market reinforced bets on higher interest rates.

US unemployment unexpectedly fell last month, Friday figures showed, and inflation data due on Thursday is forecast to show headline inflation at a hot 8.1% year-on-year.

Policymakers’ preferred core inflation is seen rising to 6.5%.

Westpac strategist Sean Callow said the data and rising yields in response was a “robust combination for the dollar.”

“It’s further evidence that the US economy is not cratering,” he said. “It just feeds into the notion that the Fed is going to spend the next three weeks saying the same thing about interest rates.”

Dollar’s gains spell earnings pain for US companies

Nomura analysts said the market, and the Fed, will want to see a series of falling monthly inflation readings before expecting a definite pause in hikes from the Fed.

Climbing oil prices and geopolitical tension also provided plenty of reasons for nervousness about growth, weighing on energy-importer currencies in Europe and even on exporters such as the growth-sensitive Australian dollar.

The Aussie fell 0.3% to a 2-1/2 year low of $0.6347 in early trade in Asia that was thinned by a holiday in Japan. Sterling fell 0.1% to $1.1077, while the yen was drifting into a zone on the weaker side of 145 per dollar that prompted authorities’ intervention to support it last month.

The yen was last at 145.46 per dollar.

The New Zealand dollar touched a two-week low of $0.5593.

Futures pricing suggests traders see a nearly 90% chance of a 75 basis point rate hike in the United States next month and more than 150 bps of tightening by May.

Ten-year Treasury yields rose for a tenth straight week last week.

Benchmark Brent crude futures jumped more than 11% last week after the Saudi-led production cartel agreed to cut supply, while the intensifying war in Ukraine is also a threat to Europe’s energy security as winter approaches.

Brent eased off on Monday, slipping 87 cents, or 0.89%, to $97.05 a barrel by 0344 GMT.

The euro fell below $0.98 on Friday and was last at $0.97335.

The US dollar index was up 0.009% at 112.82, off lows around 110 last week and creeping back toward last month’s 20-year high of 114.78.

Markets were waiting to see how the Kremlin might respond to a blast that hit Russia’s only bridge to Crimea. Nuclear-armed North Korea made a seventh recent missile test over the weekend.

Chinese markets reopened after a week-long holiday, with the yuan opening at 7.1000 per dollar and hovering at around 7.1109 per dollar at around 0200 GMT.

The Communist Party’s 20th National Congress opens on Sunday and is expected to reaffirm Xi Jinping’s leadership.

Services activity in China shrank for the first time since May in September, disappointing expectations, with the country also recording 422 million tourist trips over the last week, 18.2% lower than last year, mainly due to Covid curbs.

“The yuan will likely trade between 7.0 and 7.2 in the near term,” said Scotiabank strategist Qi Gao.

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